Page industries

[Multiplier777]

Also, many will quote one of their small/mid cap stock which is up 4x in just two years. What they will not disclose is the portfolio allocation to the stock. Most likely, it would be a small % which hardly moves the needle when it comes to overall portfolio returns.

Also, most will forget to account for the permanent loss of capital because they had to exit some bad idea at a loss (euphemistically called ‘tuition fee’).

I strongly advocate the reading of ‘Common Stocks and Uncommon Profits’ by Philip Fisher. Will really open one to ideas of buying quality stocks and sticking to them for the long term.

Philip Fisher: ‘If the job has been correctly done when a common stock is purchased, the time to sell it is – almost never’

It is easy to admire the wise words of Fisher but very difficult to follow in practice.

With all due respect and humbleness, I am still learning despite being in the markets for over 25 years. Still making mistakes like selling a small part of my Page holding at Rs 15,000 after listening to stock pundits about Page having becoming too expensive on PE basis for the kind of growth. Or investing in a mediocre company which was demerging its various businesses & betting that sum of parts will be higher (finally exiting after paying ‘tuition fee’ ). Always ending up realizing that one should ‘just buy quality stocks and stay with them for really, really long as long as the growth is intact and the story looks good’. A little bit of valuation here and there does not make a difference if the holding period is very long (as can be seen in the returns from favorite4 over the last 10 years despite buying at PEAK valuations).

[Multiplier777]

Page PAT up 45% YoY. Simply brilliant.

Stock price is up 67x even if bought at the peak valuations in the 2008 boom.

With due apologies to Kabir, who framed the below lines for the COMMON MAN looking out for God. I have reframed them to tell the COMMON INVESTOR looking out for the next multibagger:

Moko kahan dhoondhe re bande
Main to tere paas mein

Translated into English: Where are you going around looking for me, I have right here in front of you June 2018.pdf (1.2 MB)

[morigh82]

When all under valued stocks fallen down like house of cards , page is up 5%. Now it is clear that " what we know till date is wrong . The under valued one is actually over valued one as per their fundamental and the overvalued one is undervalued as per their fundamental.

[hari1]

U are going into multiple threads and pumping in optimism… in the name of quality

[morigh82]

yes I am doing this to alert everybody to be cautious in this market . If u feel bad then sorry.Asking to stay in quality is not a big crime in my opinion . At the end after all it is our hard earned money and quality only protect our hard earned money.BTW go through basant’s interview today, u will get it

[Multiplier777]

For whatever it is worth, all favorite4 stocks are up today (Page, Gruh, HDFC Bank and Asian Paints).

Investors in great companies sleep well. You may need to lengthen your assumed period of becoming wealthy through your investments in the stock market but wealthy you surely will become. Hold for VERY long term.

I reiterate that all stock portfolios must have SOME % of these stocks in them.

Buffets two rules of investing in the stock market:

Rule 1: Never lose money
Rule 2: Never forget Rule 1

It is highly unlikely that over a VERY LONG period you will lose money in these stocks. Yes, they may not jump up so wildly as some of your new found mid caps ideas. But they will also not give you the downward shocks which will suddenly change your overall portfolio returns.

But as they say, there is never one way of making money in the stock market. Each to his own. Mine is to hold great companies for very long periods, through ups and downs.

[catchsudipto]

Lucky that i have 3 of the 4 you mentioned and I am saved today. Yes quality will always save you.

[morigh82]

Don’t forget DMART . The so called poster boy of over valuation /mad valuation did not corrected even -1% after moving 150% up from last year. The message is clear from Mr. Market what general public think about valuation ,he is not agree with that .He is more smart and thinks other way. BTW there was lot of hullabaloos in news channel that HDFC Bank fell below 200 DMA. Hope those analysts got a clue today in market what is HDFC Bank…

[Deepa]

The market is not there to inform you! Partly, these 4 stocks have not gone down due to perception (safe haven) and more importantly due to large institutional ownership. There is panic selling based on fear.

[Multiplier777]

Page board meeting on Nov 14th, apart from the interim dividend, will also discuss a SPECIAL DIVIDEND.

Will be interesting to know what this would be. Page has never before declared a SPECIAL DIVIDEND. Does give some indication of the optimism that the management has on the business prospects.

Page Special Dividend Oct 2018.pdf (85.8 KB)

[phreakv6]

This is such a well discovered company that the fundamentals aren’t being discussed here anymore. Here are some things I noticed with how this company has been evolving.

1. RoE/RoCE has been improving dramatically of late. From the 40-ish levels in FY17, RoE is now nearing 50% and RoCE is in the mid 60s.

Even more amazing is RoE minus Investments + Cash which is over 60% in FY18 and I think it would be even higher in FY19.

This shows a what/if scenario when the company returns all the cash back to the shareholders. This is the best-case scenario of course, as the company will need to fund its growth as well. So the actual figure might lie between the RoE and this figure.

2. In the recent quarter, the results were very interesting with the topline growing about 17% and the bottomline rising 46%. How did this happen?

I expected expansion in gross margins but that’s not the case here. What has happened is the employee costs are reducing and is at an all time low as a % of Sales.

Apparently the company is now outsourcing its manufacturing and that is showing great results to the return ratios pointed in #1.

3. Capital turnover ratio is improving and is at all-time highs, again the reasons being outsourcing and better product mix and efficiency.

4. Inventory turns are improving as well and at all time highs.

5. Working Capital management is improving. Look at WC turnover ratio. I think it’s going to improve further in FY19 going by Q1.

6. Company is throwing out cash like never before. Look at the changes in Working Capital in the cash flow of +68.96 Cr, for a company growing at a good rate. WC is reducing presumably due to outsourcing.

FCF is improving due to efficient management of WC

7. Consequently, the balance sheet now has 285 Cr of Cash + Investments vs 73 Cr of the same in FY17.

8. The company has had a steady dividend paying history and has paid 141 Cr (42% payout) last year.

The build up in cash and investments is despite this payout. I get the feeling that the company needs to invest even lesser of its cash to keep its growth, because of improvements in its return ratios. That could explain the Special Dividend consideration coming up.

They have currently paid 84 Cr as dividend in this FY and there is possibility that this special dividend could get rid of a large part of the cash sitting on their balance sheet as they simply don’t need it. I think Rs.35 Interim Dividend and another Rs.50-70 Special Dividend is a possibility based on my assumptions on their payout history and the amount of cash they are going to need to grow.

9. Recent entry into Athleisure and Kids segments is a big plus and expands the target market.

It looks like the company is setting itself up for continuing the good growth going forward, on an even more asset-light model, with even better products and distribution, all this on such a small equity base.

Risks:

1. Can they maintain the same quality with outsourcing?

2. Valuations - This is the median P/E and P/B

Current P/E and P/B as of today is 86 and 39 and way, way above any of those numbers above. I think based on FY19E valuations, it is trading at around recent historic median valuations. The recent changes I presume are the reasons for this.

3. Myntra, Jabong and Amazon put brands that have non-existent distribution alongside established players which reduces the brand barrier.

4. Promoters have reduced stake slightly (49.01% to 48.32%) around Q1. This is a bit of a concern. FPI have however increased stake during the same period from 35.18% to 37.27%.

Disc: I have been building a decent position here in the recent fall after the run-up post Q1 results. The thesis is laid out above but if things change, I will change my mind.

[Multiplier777]

Good analysis. Even I tend to believe that going forward, shareholders can expect much higher dividends or aggressive buybacks from Page. Outsourcing of products will throw up cash like never before.

The real benefit of great compounders with high growth, high ROCE/ROE like Page and Gruh is felt when you have held these type of stocks for a few years.

[pradip]

Great analysis! If I add couple of points -

1. Page is a debt free company. 95% of liability side of balance sheet consists of equity and float.

2.CFO exceeds PAT in recent years. This helps to fund business expansion plans.

Its such a wonderful company that, as you mentioned, all financial statements are in good health!

[jamit05]

Page has near perfect numbers. What highest PE is justified. Some find the current PE of 86 ok, they might not even mind 130… For ex.

I mean what logic justifies a PE of any stock.

[phreakv6]

@jamit05

I mean what logic justifies a PE of any stock.

Here are some soft-aspects

1. Quality of Earnings
2. Opportunity Size
3. Reinvestment/Payout rate
4. Return expectations
5. Risk-adjusted returns
6. Seasonality/Cyclicality
7. Consistency/Past Performance
8. Management Quality/Corp Governance

In terms of numbers, I suggest you go through some of Samit Vartak/Michael Mauboussin’s work.

This doesn’t mean that buying at 86 PE is safe for everyone but just that not everyone’s return expectations, borne risk, portfolio mix (I use barbell strategy for eg.) is going to be the same and it might be hard for someone on the opposite side of the trade to understand because someone short on something for near-term might be long on the same underlying asset for the long-term and sometimes the same person might carry both positions at the same time bearing the cognitive dissonance.

[amishra]

In my view Page Industries doesn’t fall under typical value investing category. May be CAN SLIM model can explain the rationale as CAN SLIM is tailored for investors looking to beat the market by investing in stocks with high quality fundamentals. The aim of the system is to capture big price runs by buying fundamentally strong stocks that are market leaders with rapid growth visibility. Here valuation, PE is takes a back seat. The USP of the CAN SLIM formula is that there is no obsession with the P/E of the stock. It not matter whether a stock is “ cheap ” or “ expensive ” as per the conventional methods. Instead, the focus is on whether there is a high-quality businesses with sustainable competitive advantages.

[phreakv6]

@devaki.tripathy

Barbell strategy is generally used for long and short duration bonds. How are you applying it in equity?

Barbell strategy is the name Taleb gives a strategy in which you sit idle for days and do vigorous exercise on random days - nothing in between - i.e no workout everyday for 1 hour or you don’t eat three meals a day on time like clockwork but gorge ravenously with intermittent fasting. This stress tests the body and makes it stronger while not breaking it, thereby making it anti-fragile.

In investing, it’s something like only safe assets or risky assets - nothing in between. Nothing that will give you mediocre returns for the mediocre risk. That’s what makes the two sides of the barbells in terms of weight distribution. However, allocation isn’t 50:50 for these in a barbell strategy. You do 80:20 or 90:10 in terms of safe vs risky. So essentially its a sort of wealth preservation, alongside wealth creation.

@amishra

Can we say Page Industries doesn’t fall under typical value investing category.

I don’t know what is value investing to be honest because value investing as it was known a few decades back has morphed itself into some or other form of growth investing. What is value but an estimate of future growth? As for P/E taking a backseat, my conservative estimate says Page can be bought at 60 P/E, going by their return ratios, opportunity size and a 16% discounting rate. At current price 60 P/E will come same time next year if they maintain their recent quarter growth and if the price doesn’t move one bit. That gives the comfort to not bother about what happens in between and to just see how the business performs. Again, everything depends on what one’s allocation, timeframe and return expectation is.

[amishra]

To consider estimate of future growth, I think market is carrying below assumption for page industries…

Assumption
Page is able to deliver 25% growth in earnings for 5 years
Settle for terminal growth of 5%
Best available risk free return of 8%
Fair PE is 80.61

Assumption
EPS growth of 25% for 5 years
Settle for terminal growth of 5%
Best available risk free return of 8%
Intrinsic Value/Fair price : Rs 27,892

[phreakv6]

Page vs D-Mart - Comparison of two stellar businesses

This might get controversial but I wanted to do this purely from an academic point of view.

D-Mart has a RoE of sub 20% and RoCE of 24% and a CROIC of 29%.
Page has a RoE of 46% and RoCE of 64% and a CROIC of 95%.
(All numbers from Screener)

Both are improving on the metrics where I think D-Mart could get its RoE to 25% levels and Page could be hovering over 50% going forward.

Both are growing at high rates but they are not same.

D-Mart has grown PAT at a scorching 54% CAGR for last 3 years and Page at 21%.
TTM PAT has grown at 46% for D-Mart and 36% for Page which makes things a bit interesting.

So D-Mart is coming off a scorching pace which is moderating while Page has been growing at a steady 20% for over a decade and appears to be accelerating in the near-term. The most recent quarter is stark as Page has grown PAT at 46% while D-Mart has grown at 18%.

If the second-order effect of growth trends were to be plotted, it would appear that this is the year the comparison reaches an inflection point where Page picks up and bypasses D-Mart in terms of growth or at least matches it.

Now coming to reinvestments, it appears like D-Mart will likely reinvest all its retained earnings at a 25% RoE for the foreseeable future, for roughly the same amount of growth while Page will likely reinvest under 50% of its earnings and throw out the rest of the cash as dividends and still maintain that steady, chugging 20-25% CAGR growth at least in the next 5 years. The superior return ratios will ensure Page will invest lesser and lesser of its own money to keep growing, especially with WC improvements where it looks like it will get growth by growing its franchisee EBO network while its RM and WIP Inventory are on outsourced books. In essence, there is a real possibility of Page generating more OCF for its EBITDA than D-Mart as D-Mart may never get to a negative WC scenario while for Page it looks like a possibility.

Now coming to the longevity, both businesses have quite a long runway with large moats. Threats for D-Mart come from e-Commerce which it appears like it can ward off in the near future while for Page, the threats are from other brands but none of Rupa, Lux, Dollar, VIP are anywhere close to dethroning the Jockey brand. It might take a Fruit of the Loom to do that but that’s not a near term threat yet. Page has perhaps an edge here as it has products which won’t become obsolescent anytime soon and appears to also thrive in the e-Commerce space as it is the only underwear brand with a positive cash-flow from e-Commerce sales. It also helps that Page’s products are affordable from a ticket-size perspective.

Now that we have discussed Quality, Growth and Longevity, lets get to the price - purely on a relative basis.

D-Mart trades at 100 P/E and Page at 85 P/E. This delta is what I am trying to wrap my head around. Of course both are insanely expensive by conventional metrics that this write-up itself might sound comical on a forum like this but let’s do this simply as an academic exercise.

Would you pay more for a 20% RoE growing at 40% with a scope for RoE going up to 25% than a 45% RoE company growing at 20% with a scope for RoE going up to 50%? It appears to me that RoE improving from 20% to 25% would probably have a higher impact on valuations than RoE going up from 45% to 50% for the same growth prospects. Maybe this is what the market sees. However, if the growth equation is turned where Page grows at 25% for next 5 years while D-Mart does 20% for the next 5, I think this valuation delta could invert.

Thoughts welcome. This is purely an academic exercise.

[amishra]

Competition factor is key here. Ecommerce with all the funding and MNC entry can seriously dent retail. Not just dmart but future, reliance as well. On the contrary, same Ecommerce can enhance jockey sales. Also as rightly said dollar, Rupa, lux are far from a threat… Both are good companies, got ratios and long runway, but future looks bumpy for dmart. Its smoother for page. I would bet on page…

Not invested but tracking…